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Cleary Gull, Inc.Wed, 06 Dec 2017 17:56:44 +0000en-UShourly1https://wordpress.org/?v=4.4.13Brian Andrew, CFA, Chief Investment Officer – Johnson Financial Group featured in The Racine Journal Times, “Investment Analyst Reviews Tax Reform”http://www.clearygulladvisors.com/blog/brian-andrew-cfa-chief-investment-officer-johnson-financial-group-featured-in-the-racine-journal-times-investment-analyst-reviews-tax-reform
http://www.clearygulladvisors.com/blog/brian-andrew-cfa-chief-investment-officer-johnson-financial-group-featured-in-the-racine-journal-times-investment-analyst-reviews-tax-reform#respondWed, 06 Dec 2017 17:56:44 +0000http://www.clearygulladvisors.com/?p=10908]]>Brian Andrew, CFA, Chief Investment Officer featured in The Racine Journal Times, “Investment Analyst Reviews Tax Reform”
]]>http://www.clearygulladvisors.com/blog/brian-andrew-cfa-chief-investment-officer-johnson-financial-group-featured-in-the-racine-journal-times-investment-analyst-reviews-tax-reform/feed0How Much For That Motorcylce?http://www.clearygulladvisors.com/blog/how-much-for-that-motorcylce
http://www.clearygulladvisors.com/blog/how-much-for-that-motorcylce#respondThu, 30 Nov 2017 19:46:52 +0000http://www.clearygulladvisors.com/?p=10904]]>One of my passions is motorcycling. I share this passion with my son, to my wife’s dismay. As he approaches his birthday, next month, he has become interested in getting a motorcycle of his own. We have been online regularly reviewing bikes and their features and prices. I found an electric motorcycle which allows for greater speed control and noticed something interesting. My wife has a very strong aversion to getting any motorized transportation vehicle for my son – but that isn’t the only thing that was interesting. The price disparity of the bike I found was significant based on where it was available – online versus in-store.

My experience reflects a significant transition for all consumers. When faced with a purchase, large or small, we have the technology (also known as a phone, which now seems like a quaint reference to something from a bygone era) to make price discovery our first point of differentiation among products. It is possible that one of the reasons for muted price inflation in the economy has to do with the ease of price discovery. If you are in the business of selling products, you must understand how to manage sales given the fact that price may be more meaningful than brand, or at least as important, to consumers.

In my case, there was a 40% difference between the most expensive and cheapest version of the motorcycle brand and model I was researching. More importantly, the lowest prices were available from retailers I would not have considered. Office Depot (I would not have guessed they sell electric motorcycles) was the lowest. In addition, they were covering shipping due to a Black Friday sale and the motorcycle was available for delivery Monday.

This form of price discovery not only affects the level of inflation; it also has had a meaningful impact on retail sales.

Retail Sales

According to Adobe Analytics, Black Friday shoppers spent $3.54 billion, a 15.6% increase over last year. Add to that the $2.87 billion spent on Thanksgiving Day and, despite headlines to the contrary, it would seem consumption is alive and well for the holiday season, which is expected to bring over $100 billion in retail sales. However, the big retail news story may be that Cyber Monday sales were $6.59 billion, surpassing Friday’s in-store sales for the first time. Sales were up over 16.8% from the prior year, and mobile phone sales topped $2 billion! According to Adobe, Monday was the largest online shopping day ever.

All of this suggests that the forces at work against higher price inflation will remain a secular trend for some time to come. That is relevant because the Federal Reserve focuses on the level of inflation as part of its management of interest rate policy.

The Economy and Inflation

On Tuesday, the second estimate for third quarter economic growth and inflation was released. It showed that U.S. economic growth was actually a little faster than originally thought, up 3.3%. One of the reasons for this improvement in the estimate had to do with a revision to the business investment numbers. Companies have begun to invest more in growth as the economy improves. Business investment was estimated to be up 10.4% instead of the originally reported 8.6%. This acceleration also reflects a greater confidence level among business owners and managers to make longer-term investments for growth. Stock investors have taken notice, and the rally in stock prices continues as a result.

The inflation measure that is released with the growth update was up 1.5% year-over-year. The Fed has targeted a 2% level of inflation for some time. Once again, inflation seems to push against the Fed’s desire to see prices advance that quickly, and we have another disappointing report, from its perspective.

The current Fed Chair, Janet Yellen, noted in her testimony to Congress on Wednesday that the lower level of inflation “could reflect something more persistent” than the Fed currently understands. Maybe the Fed Chairwoman should shop for an electric motorcycle online and she would find some clear evidence as to why inflation is persistently below expectations.

Her soon-to-be replacement, Jerome Powell, was in front of the Senate on Tuesday for his confirmation hearing. He echoed Chair Yellen’s sentiment on inflation, suggesting that there may be some permanence to lower inflation. A lower level of inflation could mean fewer hikes in the Federal Funds rate and a persistently lower interest rate environment for some time.

Inflation, i.e., price increases, is a necessary evil because it affects buying behavior. If inflation is non-existent or negative for an extended period of time, consumers will postpone purchases in the belief that they can obtain goods at lower prices. This hampers economic growth, something we’ve all witnessed in the slow growth, low inflation economy of Japan. However, we don’t think this is Japan.

Retail sales over the holiday weekend would suggest that demand is there; however, it may be that smart shoppers armed with mobile phones using price discovery as their favorite weapon are keeping prices down.

And no, I didn’t buy the motorcycle from Office Depot, despite the amazing deal. Still working on Mom to make that happen!

]]>http://www.clearygulladvisors.com/blog/how-much-for-that-motorcylce/feed0Black Goldhttp://www.clearygulladvisors.com/blog/black-gold
http://www.clearygulladvisors.com/blog/black-gold#respondMon, 13 Nov 2017 19:03:14 +0000http://www.clearygulladvisors.com/?p=10882]]>Geo-politics and oil prices go hand in hand. Last week’s announcement by the Saudi Arabian king and crown prince that they were tackling corruption among royal family members led to a rally in oil prices. Still, oil prices have been moving higher for some time, likely meaning that other factors are also affecting them.

Price History

After trading above $100 per barrel in 2014, West Texas Intermediate (WTI) oil prices plummeted, bottoming near $25 per barrel in early 2016. Since then, prices have more than doubled and now stand above $55. This price movement belies the factors that affect oil prices over time. They include supply, demand and geo-politics. Often these factors are inextricably intertwined.

Oil Supply

Supply issues are dominated today by two things. The first is the Organization of Petroleum Exporting Countries (OPEC). OPEC represents a cartel of countries, many of which rely largely on their petroleum exports for government revenue. This means that when prices fall, these countries’ citizens are directly impacted. OPEC has been losing global market share for many years. Because of these countries’ dependence on oil revenue, and the fact that they’ve done little to diversify their economies, a decline in prices creates many problems. Still, they might be willing to forgo revenue in the short-term to protect market share. They normally do this by agreeing to production quotas. The problem of course is that the cartel is loosely guided by the largest producers. Saudi Arabia is the largest producer, providing 10 million barrels per day (bpd). (The world uses approximately 96 million bpd according to OPEC’s October 2017 oil report.) The next closest country is Iraq, with production of 4.5 million bpd. Countries like Ecuador and Gabon produce fewer than 550,000 bpd. As a result of this disparity and the countries’ need for revenue, holding a production coalition together is always a problem, even when faced with new competition from fracking technology. These new technologies have led the U.S. to become more energy independent; it now produces more than 50% of its energy needs domestically.

The other significant factor affecting oil supply has to do with the new technologies associated with fracking and horizontal drilling. While these technologies have been around for some time, the production cost of oil using these methods has declined dramatically as the technology has improved. In the U.S., this has led to an increase in oil production from fewer than 500,000 barrels per day to more than four million in the last decade (when updating the chart below through 2017).

Oil Demand

Oil demand also affects prices. According to OPEC’s October, 2017, monthly report on oil markets, demand is expected to grow by 1.5 million bpd in 2017 and another 1.4 million bpd in 2018. Driving this growth is the increase in economic activity, the report notes, particularly in the Organization of Economic Coordination and Development (OECD) countries and China. OECD countries include the U.S., and much of Europe and Japan — places where, admittedly, economic growth has moved higher since 2016.

The increase in economic activity, coupled with the lower production quotas set by OPEC and production disruption in the U.S. due to hurricane Harvey and others, has led to higher oil prices. WTI prices have moved from $43 per barrel in late June to $57 today. The graph below shows the U.S. inventory of distillates, such as gasoline. The decline is evident due to the hurricanes reducing refining capacity.

However, as WTI prices are approaching $60 per barrel, it is likely that we will continue to see an increase in U.S. production as companies continue adding supply due to those higher prices.

Through September, the number of oil rigs using newer horizontal drilling technologies and operating in the U.S. has increased by more than 76% from the same period last year. Between now and the end of next year, their oil production is expected to grow by another 619,000 bpd. So while higher prices are good for OPEC, they are also good for domestic producers using higher cost technologies.

Geo-Politics

Of course the politics of OPEC and OECD-producing countries play a role in prices. The announcement last week that 200 royal family members were being arrested and/or having their assets frozen as part of a corruption round-up pushed oil prices higher because that sounds like it will create unrest inside OPEC’s largest producing country. Some, however, saw this as the beginning of the implementation of a long-range plan that will attempt to wean the Saudi Arabian economy from its heavy dependence on oil revenues (today 80% of the economy is tied to those revenues).

In countries such as Venezuela and Brazil, rampant inflation and unrest also create a difficult situation. In the case of Venezuela, an OPEC member with relatively modest production, it can’t afford to reduce the revenue derived from oil production because of local political unrest.

Geo-political events will always be part of the oil price puzzle. Understanding them may assist in determining their impact on prices; however, they represent one of the more difficult aspects of price discovery in the energy markets.

It is possible that if global economic growth peaks near the current level, demand for oil will level off. Current higher prices will provide the opportunity for U.S. frackers to put more horizontal wells into production, and this additional flow could stabilize oil prices. In addition, the U.S. continues to receive benefits from the increased efficiency in energy use, which dampens the growth rate for energy use even when economic growth moves higher. For these reasons, we don’t believe that we are seeing the beginning of another more substantial leg up in oil prices. Rather, it seems possible that prices will remain range-bound not too distant from their current level.

]]>http://www.clearygulladvisors.com/blog/black-gold/feed0Jobs, Jobs, Jobshttp://www.clearygulladvisors.com/blog/jobs-jobs-jobs
http://www.clearygulladvisors.com/blog/jobs-jobs-jobs#respondWed, 01 Nov 2017 19:41:40 +0000http://www.clearygulladvisors.com/?p=10872]]>Economic and job growth go hand in hand. When the economy improves, more jobs are available. As the labor market tightens, reflected in a declining unemployment rate, we should see an acceleration in wage growth. However, one of many conundrums the current economic environment has posed is why, with unemployment so low, hasn’t wage growth accelerated more this late in the growth cycle? The answers may be in the cross-currents of population growth, labor force participation and companies’ growth prospects.

Constructing the Employment Picture

The current unemployment rate is 4.2%. This Friday we will get another look at how the employment picture is faring with the October report. We pay attention to the employment picture for several reasons. The unemployment rate provides a clue as to how much slack there is in the labor market. The lower the rate, the less slack. The data also gives us information about what age groups are participating in the labor market, which industries are growing wages and whether or not people are finding the kind of work they want, e.g., full or part-time.

We know that the Federal Reserve pays a lot of attention to the labor markets and the growth rate of wages; they have stated that maintaining full employment, in addition to price stability (rate of inflation), is part of their mandate. This means the numbers on Friday play into the Fed’s future expectations for the direction of interest rates.

The chart below provides a picture of how unemployment and wage growth have changed over the last 10 years. The gray bar represents the last recession. You can see that the unemployment rate ran up to 10% while wage growth began to fall from near 4% as more and more people became unemployed. Then, as the unemployment rate fell, you can see that wage growth really stayed relatively flat until early 2016. At this point, the unemployment rate had been cut in half and was near what the Federal Reserve called full employment. Since then, the unemployment rate has continued to decline and, finally, wage growth has begun to pick up, although it still remains below 3%.

What’s Different Now

The 2008-2009 recession was deep and pushed many people out of the labor force as a result of the collapse in corporate revenue and earnings. As the demand for labor began to return, companies were very cautious about hiring full-time people and turned to part-time and contract employees to fill their growing needs. However, because the economic growth rate has been so slow, averaging just over 2% for the last several years, companies’ revenue growth has been almost non-existent (until last year), resulting in slower conversion of those employees to full-time.

In addition, the aging baby boomer workforce began to retire out of the job market. That, coupled with very modest population growth, led to a smaller growth rate in the overall workforce. The chart below shows the steady decline in the population growth rate from 2000 and the growth in the labor force. You can see that in 2015, these two lines crossed, and finally the growth rate in the labor force exceeded the population growth rate. That is a function of a higher labor force participation rate (those discouraged and part-time seeking full-time workers coming back to the workforce).

With the faster growth rate, the slack in the labor market began to decline in 2016 and forced the unemployment rate below 5%. It is likely that this trend will continue, and in 2018 we may see a national unemployment rate that is actually below 4% — something we haven’t seen in decades.

This improvement in participation comes at a time when companies have also seen an increase in revenue growth. That revenue growth leads to better corporate earnings. Since the beginning of the year, corporate earnings growth for companies in the S&P 500 Index has exceeded 12%, almost twice the long-term average. With real demand lifting revenue and earnings growth, companies will be willing to raise wages and, as noted in the first chart, you see the average hourly earnings growth rate begin to accelerate later in 2015.

In 2017 we are also beginning to see an increase in the labor force participation rate among millennials (those born between 1980 and 2000). This will grow the labor force with people whose skills are more likely to reflect those needed.

However, the skills gap in the U.S. remains a critical issue as reflected in the JOLTS report (Bureau of Labor Statistics Job Openings and Labor Turnover Survey). The number of open unfilled positions has gone from 2.2 million in 2009 to more than six million today!

Wage Inflation/h7>

While there is good news in the labor market, we must continue to monitor the growth rate of wages carefully. The overall rate of inflation has remained subdued for the last several years. Although we expect that inflation will rise, partly due to the increase in the wage growth rate, we don’t think it will reach a level, this late in the economic growth cycle, that warrants a dramatic departure from the current monetary policy affecting interest rates. This could mean that intermediate interest rates don’t change dramatically in the next year.

Friday’s update on the unemployment rate will give us some clues as to whether or not the trends we’ve noted here continue or the path is disrupted by a change in the trend. Either way, we’ll be studying the numbers to get a clearer picture on inflation and the impact it may have on our market views.

]]>http://www.clearygulladvisors.com/blog/jobs-jobs-jobs/feed0Wow — $666 Billionhttp://www.clearygulladvisors.com/blog/wow-666-billion
http://www.clearygulladvisors.com/blog/wow-666-billion#respondThu, 26 Oct 2017 18:42:55 +0000http://www.clearygulladvisors.com/?p=10866]]>When discussing budgets, how often does a conversation at work or home focus only on revenues? Any discussion about financial planning, whether personal or professional, usually incorporates the opportunity to raise revenue and cut expenses in order to meet a plan or improve on last year’s results. Congress approaches the budget discussion differently, which may provide some insight into how the tax reform conversation affects the economy.

When the Office of Management and Budget (OMB) reported the results for the Federal government’s last fiscal year, which ended on Sept. 30, it indicated that the deficit was $666 billion. Despite the fact that the current administration has been slow to replace key positions and used regulatory reform to shrink some agencies, the deficit still managed to grow by 13.7% over the prior fiscal year. A larger deficit results in more government borrowing. The federal budget deficit has grown by over $200 billion during the last several fiscal years. Add to that the $100 trillion in unfunded liabilities from social programs, and we have a real drag on economic performance.

As illustrated in the chart below, one of the reasons for a larger deficit is that revenues have declined from their peak in 2013. In addition, federal spending has risen faster than revenues for the last two years. If the economy runs more slowly, i.e., less consumption and business profitability, then the federal government’s tax receipts will decline as well. This year’s pick-up in growth should help with that.

Tackling tax reform in an environment where deficits have expanded is difficult, both from a fiscal and public policy perspective.

Tax Reform

The Senate had already passed a budget resolution and the House passed one narrowly today. The resolution begins the process of debating the tax reform bill. It creates a challenge because it also requires some of the reform to be paid for. In order for the Republicans to pass a tax bill without help from the Democrats, they passed a resolution that lays out the upcoming year’s budget guidelines and restricts the tax reform legislation from permanently raising the deficit by more than $150 billion per year over the next ten years. This means that for every tax cut, they need to find some revenue to pay for it, and that’s the rub.

Fiscal conservatives in the Republican Party will have a hard time passing any tax cut, corporate or personal, if it isn’t paid for with some increase in tax revenue in other areas. This could be good news because it requires a reform of the tax code to get to a package that doesn’t materially raise the deficit. Here is an example.

One of the propositions in the tax reform plan is to reduce the top corporate tax rate to 20% from 35%. This would cost approximately $1.5 trillion over the next 10 years. If there was a new limit placed on the interest deduction for corporations, it is proposed to bring in an additional $900 billion over 10 years, almost offsetting the rate reduction. This kind of horse trading between the government’s revenues (taxes) and expenses is how tax reform gets done.

If you were to include the benefit of increased business investment from the lower corporate tax rate (what’s known as “dynamic scoring”), then almost all of the cost of the rate reduction would be offset because that increased investment results in greater corporate profitability. Corporate profitability, in turn, should jump start economic growth and job creation.

Here, we have to be careful. Not all economists agree with the notion that tax cuts result in greater economic growth, or at least not the magnitude of growth that comes from reducing corporate tax rates. As a result, the dynamic scoring process can be perilous because cuts may not generate the growth needed to provide the offset. This is where reform becomes difficult and the Republican Party becomes fractured, as some fiscal conservatives in the party require tax cuts to be offset by additional revenues without the growth factored in.

This explains why tax reform is hard and takes time. Some estimate that the proposed cuts could add .25% to .5% to next year’s economic growth rate if passed by year-end. Why not more?

A Few Reasons

The U.S. economy has been expanding for almost a decade without a recession. This is a very old growth cycle. Adding stimulus at this stage isn’t the same as adding it in the early stages of expansion. Later in the business cycle, companies may see moderate demand. In addition, the labor market is already tight, with unemployment approaching just 4%.

We know that much of the labor force is employed. Those who are not or are underemployed are probably lacking the necessary skills to take the better paying jobs available. Adding stimulus at this time will not likely change the balance in the labor market as much as a change in our policy approach to education (we’ll leave that for another commentary).

In addition, the Fed has begun to raise interest rates, which ultimately has the effect of reducing growth. Thus, the tax plan has to fight the headwind of higher interest rates.

Do It Anyway

We are not suggesting that reform shouldn’t be undertaken. Any measures taken to simplify a complicated tax system and create a tax environment relative to our global competitors should be welcome as long as it doesn’t meaningfully add to a problem that already exists (the deficit).

More importantly, some reform of the corporate and personal tax systems could be a boon for business investment and consumption as the next expansionary cycle takes hold. As this cycle winds down, we may go through a normal business cycle recession in a year or two, which would provide the normal reduction in leverage and elimination of poor competitors that usually happens. The lower tax rates put in place now may dampen the effects of a business cycle downturn and create an environment for greater business investment and greater consumption.

]]>http://www.clearygulladvisors.com/blog/wow-666-billion/feed0Lessons From A Crashhttp://www.clearygulladvisors.com/blog/lessons-from-a-crash
http://www.clearygulladvisors.com/blog/lessons-from-a-crash#respondWed, 18 Oct 2017 19:05:09 +0000http://www.clearygulladvisors.com/?p=10861]]>Thirty years ago this Thursday, I was a budding analyst working with two very good stock portfolio managers. I had been on the job three months. On Monday, Oct. 19, 1987, the stock market “crashed.” The S&P 500 Index fell 21% that day after falling 10% the week before. My much more experienced colleagues were convinced that nothing had fundamentally changed for corporations’ earning power, and we spent the late afternoon and evening lining up stock purchases for Tuesday morning.

At 6 p.m., the head of the trust company came into the conference room where we were working and asked us to liquidate 25% of our stock portfolios the next morning. I was about to get my first lesson in portfolio management.

Market Timing

The trust company manager was gripped by the emotional reaction he had to seeing stocks down 25% or more and wanted to own fewer of them. His rationale for reducing the position of our company was only a function of one thought: “What if it goes lower?”

We know that stock prices are made up of many things. Partly, they reflect actual corporate earnings and expectations for future growth in those earnings. They also are prone to change based on the sentiment of stock investors. Of course sentiment can be affected by any number of things – most importantly the perspective of the other investors.

The head of our trust company was reacting to the decline in prices that resulted from a change in sentiment, likely exacerbated by what at the time was called “portfolio insurance.” Computing power was at a premium back then, so the number of people involved in these algorithmic strategies trading futures was nominal (about $60 billion). The idea was to reduce equity exposure automatically when markets began to decline. The more they went down, the more selling took place.

The prior week, the U.S. Secretary of the Treasury had chided the German central bank to either inflate the mark (this was before the Euro) or the U.S. was going to devalue the dollar. This kind of sabre rattling at a time when sentiment had already turned very negative helped to worsen the problem for stocks.

There was plenty of negative sentiment then but no real change in the outlook for fundamental corporate earnings.

The next morning we liquidated our 25% as instructed. The S&P 500 index had sold off from a summer high near 337 and bottomed just below 225 for a 33% loss. However, buyers entered the market seeing that fundamentals had not changed, and the S&P 500 finished the year with a positive return above 6%. It was December before we were allowed to take on new positions and as a result we underperformed for the year. The entire group’s incentives were withheld due to poor performance.

Lessons Learned

The first lesson learned is that market timing is a binary activity. You must not only predict when to exit the market properly, you have to determine when to get back in. To be successful, you generally have to get back in when it feels most uncomfortable.

Looking to add to our positions on that Tuesday morning was very uncomfortable. The news media (powerful even long before the internet) was talking about impending doom. To buy in the face of this took courage. I believe this was an example of the famous Warren Buffet quote, “Sell when others are most greedy and buy when others are most fearful.” People were fearful that Tuesday.

We see this kind of market timing behavior now, for different reasons. Today, many investors feel the market has over run its course and we are due for an imminent decline. As people wait for the downturn, they raise cash and then feel like they are missing out on the rally or, worse, when the market does sell off, they are reluctant to put it back to work. When is it appropriate to go back into the market? When it’s down 5%, 10%, 15%? Of course it is nearly impossible to know in advance, and that’s the trouble with market timing.

Today’s equity market suggests the rally will continue. Corporate revenue, earnings and operating margins are all very good and support stock prices moving higher. Positive investor sentiment as reflected in the positive asset flows into stocks also remains a booster. This sentiment can change at any time; however, over longer periods of time, stock investors are an optimistic bunch. And why not? From January 1950 to June 2017, a portfolio invested mostly in stocks was up 80% of the time using one-year holding periods. If you use five-year periods, it’s 100%.

Investing in stocks, then, is a time horizon game. Over time, stocks will produce a reasonable rate of return, albeit with much more volatility than many other assets. The volatility is the price we pay for that higher return. Time is the thing you need to combat that volatility, along with a diversified portfolio of other assets. The S&P 500 Index was near 300 when I began as an analyst (it is interesting to note that the index closed at 676 on March 9, 2009, almost 21 years later). Today it stands at 2,559. That’s a 752% return for a period of just over 30 years.

We believe it’s more important to use the market’s rally as an opportunity to rebalance portfolios back to their strategic targets. In doing so we are reducing the size of our winning positions and adding to those that may not have participated as fully. This isn’t just an exercise across asset classes but within them as well. We have large cap growth positions that have more than a 20% return and small cap value positions that have returned less than 10% since the beginning of the year. Our objective is to trim winners and buy the less fortunate.

In 1987, I learned that managers are fallible. I’ve used that lesson to admit my mistakes, learn from them and keep moving forward.

To begin, Brian discusses the recovery and growth of global economies over the past two years, especially in Europe, and its influence on stock prices. Then, he reviews the timeline and potential impact of U.S. tax reform. After that, Joe discusses how and why international stocks are currently more attractive than domestic stocks. To conclude, Dave reviews how interest rates are affecting our investment decisions and portfolio construction.

]]>http://www.clearygulladvisors.com/blog/2017-fourth-quarter-market-webcast/feed0How Do I Protect My Information? Answering Your Questions On How To Protect Yourself After Equifax’s Security Breachhttp://www.clearygulladvisors.com/blog/how-do-i-protect-my-information-answering-your-questions-on-how-to-protect-yourself-after-equifaxs-security-breach
http://www.clearygulladvisors.com/blog/how-do-i-protect-my-information-answering-your-questions-on-how-to-protect-yourself-after-equifaxs-security-breach#respondMon, 09 Oct 2017 16:25:02 +0000http://www.clearygulladvisors.com/?p=10850]]>In September, Equifax reported a massive data breach. Hackers accessed the personal details – including names and Social Security numbers – of more than 145 million consumers from mid-May to July. It remains unclear how the data may be used. I’ve answered FAQs about the breach and what steps you should take to monitor and protect your information now and in the future.

What information was impacted by the breach?

The information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. Furthermore, criminals accessed credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers.

What is Equifax doing to help consumers after the breach?

To determine if your personal information may have been impacted, you can visit www.equifaxsecurity2017.com. You will need to provide your personal information, including your last name and the last six digits of your Social Security Number.

Equifax is offering one free year of credit file monitoring and identity theft protection, which includes 3-Bureau credit monitoring of your Equifax, Experian and TransUnion credit reports; copies of your Equifax credit report; the ability to lock and unlock your Equifax credit report; identity theft insurance; and internet scanning for your Social Security number. You must complete the enrollment process by November 21, 2017.

What if I determine from the site that I wasn’t impacted by the Equifax breach?

The information is still helpful, and it’s always important to protect your information and take proactive steps to deter fraud and identity theft. Also, you can still enroll in the one year free credit file monitoring and identity theft protection from Equifax.

If I enroll in the credit monitoring and identity theft protection, I understand I waive my rights to sue the company in connection with this breach. Is that true?

No. Equifax clarified the terms in the agreement do not apply to this incident and you would not be waiving any rights.

There are different choices on what I should do next. What are the advantages to using a fraud alert, security freeze, or the file lock feature in the TrustedID Premier product from Equifax? May I select more than one?

You do not need to choose a single option. We recommend choosing the ones that best suit your individual situation and credit activity. Details on each options and its advantages are below.

FRAUD ALERT

A fraud alert, also known as a security alert, is a notification that warns creditors you may be a victim of identity theft. Think of it as a “red flag” for third parties that may consider extending you credit. Fraud alerts are free, and still allow third parties access to your credit reports. However, if there is a fraud alert on your report, creditors are encouraged to take certain steps to verify your identity before extending you credit. Once you place a fraud alert with one of the three consumer reporting agencies, it will automatically be placed with the other two agencies.

Remember, an initial fraud alert only lasts 90 days, although you may renew them as many times as you wish.

SECURITY FREEZE

A security freeze prevents any potential creditors from accessing your credit file unless you lift or remove the freeze, either temporarily or permanently. With a freeze in place, ID thieves can apply for credit in your name but few, if any creditors will extend credit without having access to your credit report. Security freezes are regulated by each state and use a PIN for authentication.

Equifax has waived the fee to add, lift or permanently remove a security freeze through January 31, 2018. However, the other consumer reporting agencies may charge to place or remove freezes. The freezes remain in place until you lift or permanently remove them. You will need to contact each consumer reporting agency to place or remove a security freeze. The contact information for each agency is:

An Equifax credit file lock is similar to a security freeze and allows you to lock access to your Equifax credit report. Lenders cannot access your Equifax credit file to open new accounts unless you unlock your file. However, when you lock your Equifax credit file, it does not lock your credit file at the other consumer reporting agencies. The lock feature is available within the complimentary TrustedID Premier product Equifax is making available to consumers.

You need to enroll for TrustedID Premier by Wednesday, January 31, 2017.

Furthermore, a new service allowing consumer’s direct access to lock and unlock their Equifax credit file. The service will be available by January 31, 2018 and will be free for life. Equifax is expected to provide more details about this soon. You can follow updates and information at www.equifaxsecurity2017.com.

Is there anything I should do in addition to fraud alerts, monitoring or a security freeze that would help me stay ahead of ID thieves?

Yes. It is important to check your financial statements on a regular basis. You should review your statements and look for fraudulent transactions or unusual balances. You should also enroll to receive account transaction or card alerts via email or text message from your financial services provider. Online and mobile banking services help make it easy to frequently check your account activity. Immediately report any suspicious activity.

Periodically order a free copy of your credit report. The three major consumer reporting agencies must provide a free copy of your credit report each year — via a government-mandated site: www.annualcreditreport.com. You may also order a free credit report from Innovis. Take advantage of these free reports: Put a reminder on your calendar to request a copy of your report every 120 days; and report any inaccuracies or questionable entries if you spot them.

Is it possible that if I use credit monitoring, fraud alerts or have a credit freeze in place it will not stop ID thieves from fraudulently claiming a tax refund in my name with the IRS, or conducting health insurance fraud using my Social Security Number?

Yes that is the case. There are forms of identity theft that can’t be stopped by a freeze, monitoring or fraud alerts. That’s why it’s crucial to regularly review your financial statements and credit with consumer reporting agencies for any signs of unauthorized activity. You should also plan to file your taxes as soon as you have the tax information you need, before ID thieves attempt to file in your name.

Can I place a security freeze at the same time I have credit monitoring in place?

Yes, you can. However, it may not be possible to sign up for credit monitoring services while a freeze is in place. Experts recommend signing-up for the free credit monitoring first, and then placing the security freeze.

What should I do if I experience identity theft?IdentityTheft.gov and click “Get Started”. This site is the federal government’s one-stop resource for identity theft victims. The site provides detailed advice to help you through the recovery process, including:

A personal recovery plan that walks you through each step

Checklists to help update your plan and track your progress

Pre-filled letters and forms to send to credit bureaus, businesses and debt collectors

]]>http://www.clearygulladvisors.com/blog/how-do-i-protect-my-information-answering-your-questions-on-how-to-protect-yourself-after-equifaxs-security-breach/feed0Cleary Gull Acquires Milwaukee’s Alberts Investment Managementhttp://www.clearygulladvisors.com/blog/cleary-gull-completes-acquisition-alberts-investment-management
http://www.clearygulladvisors.com/blog/cleary-gull-completes-acquisition-alberts-investment-management#respondThu, 05 Oct 2017 18:58:11 +0000http://www.clearygulladvisors.com/?p=10843]]>Cleary Gull Acquires Milwaukee’s Alberts Investment Management
]]>http://www.clearygulladvisors.com/blog/cleary-gull-completes-acquisition-alberts-investment-management/feed0To Cut Or Not To Cuthttp://www.clearygulladvisors.com/blog/to-cut-or-not-to-cut
http://www.clearygulladvisors.com/blog/to-cut-or-not-to-cut#respondTue, 03 Oct 2017 18:43:57 +0000http://www.clearygulladvisors.com/?p=10838]]>Last week Wednesday, the “Tax Reform” (subtitled: Unified Framework for Fixing Our Broken Tax Code) plan put forth by Republicans in the House was released and critiqued by politicians from both parties. While there are many unanswered questions about the final details, there are a number of items that seem favorable for the economy and stock investors. The plan was hailed as a “growth” plan by the administration, and the rally in stock prices seemed to suggest investors’ agreement. However, as the details are hammered out, we’ll see if the “reform” becomes a cut only and just how big the cut may be.

Corporate Taxes

One of the main provisions of the plan is to reduce the top corporate tax rate from 35% to 20%. This rate is closer to the average of other developed countries around the world. As an example, the average corporate tax rate for the largest 100 companies in the U.S. is 18%. In other words, because they are global, they have the ability to do business wherever they’d like and take advantage of lower global tax rates. The proposed reduction in the corporate tax rate will benefit small companies who don’t share the same global benefit. Among small companies, the average tax rate is over 30%, so it would seem the reduction could give them more capital for reinvestment, thereby creating economic growth. The cost of this provision is $1.5 trillion over 10 years.

The rally in small company stocks since the plan’s issuance seems to suggest that stock investors agree on the benefits of this type of tax reduction.

To pay for this, there is a proposition to limit the interest rate deduction and a number of other corporate deductions which would raise revenue by $1.450 trillion over the same period.

The other provision in the reform plan is the reduction in the top rate for privately owned companies such as those organized as “Sub-S” companies. Bear in mind that more than half of U.S. workers work for companies with fewer than 1,000 employees, so this type of provision would reduce the taxes paid by small companies. They would benefit from increased retained earnings which would likely lead to greater business investment and consumption. Isn’t that just a tax cut for wealthy people, some ask? It may be that some business owners are wealthy; however, this type of rate cap would aid many plumbers, restaurant owners and contractors. The rally in stock prices benefits anyone with a pension plan or 401(k).

According to the plan, there is approximately $2.4 trillion in corporate cuts and $1.7 trillion in revenue additions for a net cost to taxpayers of $725 billion over 10 years. (The economy is currently almost $19 trillion annually and the Federal budget is almost $5 trillion per annum.)

Individual Taxes

Looking at the reform aspect of the plan for individuals, the primary change is the reduction in the number of tax brackets to three or four. This consolidation cannot be scored just yet, because the plan doesn’t include details about how the income limit for the brackets will come into play. While many have already excoriated the plan for its cost to low income earners or cuts for the wealthy, we really don’t have enough details to do the math on who benefits.

The proposed plan would reduce total tax revenues from individuals by approximately $2 trillion. However, the elimination of the state and local tax deduction would raise $1 trillion. Looking at the other changes, which include eliminating the personal tax credit in favor of a larger credit for individual and married filers, the cost of the reform plan for individuals could be as much as $2.1 trillion.

Any reduction in the taxes individuals pay results in higher consumption. Because nearly 70% of the economy is driven by the consumer, this would result in faster economic growth.

A Long Way from Passing

Still, we are a long way from the finish line. There are many other provisions in the tax reform plan that seem to have little likelihood of passing. Two of these are the elimination of the estate and alternative minimum taxes. These have a high cost and wouldn’t be offset by any additional revenue, and there doesn’t seem to be much chance that they will remain included.

While many worry about the thin margin Republicans enjoy in the Senate, they should recall the divisive nature of that party during the health care debate. Fiscal conservatives in the Republican Party will be tougher than some Democrats when it comes to the details of the plan.

The Senate passed a budget resolution on Friday which gets the ball rolling. However, as compared to tax plans during the Reagan, Clinton and Bush administrations, we are behind. Each of those plans was tackled at the beginning of each respective administration, with plans/resolutions offered and passed by June. Here we are in October and just getting started.

This means that any plan is likely to be a 2018 event. Current projections show that if the plan were passed during the first quarter of 2018, it may add as much as .25% to economic growth. The stock market may continue to price in the corporate tax reduction benefits between now and the plan’s passing as long as rhetoric makes it seem likely that it can actually pass. You may recall we had a similar effect at the end of 2016, and that euphoria faded as Republicans and the administration took up health care first. Because they are 0 for 3 in getting health care reform passed, they don’t have the proposed $900 billion in savings from that effort, which suggests the tax reform plan will become a more modest tax cut and less about meaningful reform.

There is no question that reducing the tax burden for individuals and corporations is beneficial to the economy and its trajectory of growth. Any sort of reduction in tax burden next year is likely to allow this old economic recovery (soon going on year 10) to continue leaving stock investors with the benefit of continued earnings growth into 2018.